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Collection: Mohnish Pabrai - #77 'Position Sizing'



Mr.Pabrai, thank you for joining us today. Can you speak a little bit about your portfolio? So how many positions both large positions, short positions, how much cash do you hold?


Oh yeah sure.


I mean what –


Yeah so typically, you know, this has gone through a little bit of change over time for me.

But when I first started I used to run what I would called a 10 by 10 portfolio where if I make a bet it would be at 10% of assets and I was looking to have kind of like a 10 stocks portfolio, if I got fully invested.

And then in my shell shock state after the financial crisis, I changed that to – you know, we were seeing so many ideas such a large number of ideas come through that I went through investing in baskets like there was a commodities basket that made sense because we had just such a wide range of companies that were so misprice.

And so at that point I change to having 2%, 5% and 10% positions. Where 2% would be either, you know, an asymmetric bet where there was a huge upside but also somewhat elevated downside, kind of like the Freddie & Fannie preferred if you will. 5% would be more, you know, where there was a good amount of conviction. And 10% would be where, you know, absolutely you know felt like this was a serious idea and had to put the maximum amount. So the maximum we invest at any given time is 10% of assets.

So far, we have not trimmed a position because it has grown in size because I don't want to cut the flowers and water the weeds. I'd rather water the flowers and cut the weeds. And so we have some position that had become a much larger portion of the portfolio because they have appreciated and such. And that's perfectly fine.

And so my preference is always like the 10% but we will do 5% and sometimes, we will do 2%. And cash basically is that, you know, the idea is that the first 75% of the portfolio get invested in doubles, you know, where we see at least a 2X possibility. Then the next 10% focus on triples. Then maybe the next 10% on 4Xs. And the last 5% on 5Xs.

So that's typically how – basically, the idea is that as you get more compelling ideas, you're willing to go deeper into. So for example, you know during the financial crisis, at the absolute depths of the financial crisis, it would make no sense to hold cash.

You know, you really want to get to fully invested at that point because you just got pretty much the best possible playing field to put money to work. And subsequently as those positions get sold off or get full price then your cash will build up again and so on. So that's basically how we try to run that.



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